Can an insurer circumvent Nevada’s absolute-liability statute?

Absolue Liability

Torres v. Nev. Direct Ins. Co. (Nev. Supreme Ct. – July 30, 2015)

The issue is whether an injured party may assert NRS 485.3091, Nevada’s absolute-liability statute, in order to sue a tortfeasor’s insurer after obtaining a judgment against the tortfeasor, and whether an injured party can pursue a bad faith claim against the insurer.

In April 2006, Perez-Castellano was driving a vehicle owned by Mollinedo-Cruz and insured by Nevada Direct Insurance Company (NDIC) when he crashed into Torres’ car, injuring Torres. Neither Mollinedo-Cruz nor Perez-Castellano contacted NDIC. Torres filed a complaint against Mollinedo-Cruz and Perez-Castellano for negligence, negligent entrustment, and punitive damages stemming from the car accident. Mollinedo-Cruz and Perez-Castellano answered the complaint, denying all of the allegations and raising several affirmative defenses. Mollinedo-Cruz and Perez-Castellano then stopped participating in the action.

NDIC subsequently filed a complaint for declaratory relief against Mollinedo-Cruz, Perez-Castellano, and Torres. NDIC argued that because Mollinedo-Cruz violated the policy in failing to cooperate with the post-accident investigation, NDIC was not responsible for his defense or indemnification in Torres’s suit against Mollinedo-Cruz. NDIC made an offer of judgment for $1 more than Mollinedo-Cruz’s policy limit to Torres, but she declined the offer. The district court entered default judgments against Mollinedo-Cruz and Perez-Castellano in the declaratory relief case and concluded that NDIC was not obligated to defend or indemnify either of them for the accident with Torres. But, the district court concluded that the default judgments did not apply to and are not binding on Torres and she could pursue any and all claims/defenses available to her under Mollinedo-Cruz’s insurance policy. Torres subsequently acquired a default judgment against Mollinedo-Cruz and Perez-Castellano in her original liability action.

Torres then filed a new complaint against NDIC. Torres claimed that NDIC breached the insurance policy when it failed to pay her claim, she was entitled to damages based on a theory of promissory estoppel, and NDIC breached the implied covenant of good faith and fair dealing. NDIC filed a motion to dismiss Torres’ promissory estoppel and breach of the implied covenant of good faith and fair dealing claims for failure to state a claim. The district court denied NDIC’s motion on Torres’ promissory estoppel claim, but granted the motion on Torres’ claim that NDIC breached the implied covenant of good faith and fair dealing.

At the conclusion of a two-day bench trial, the district court entered judgment in favor of NDIC. The district court concluded that Torres was neither a named contracting party nor an intended third-party beneficiary of the insurance contract. The court further concluded that Torres was not a judgment creditor of NDIC because NDIC obtained its default judgment that it had no duty to defend or indemnify anyone for the accident with Torres before Torres obtained her default judgment against Mollinedo-Cruz and Perez-Castellano. The court also concluded that NDIC fulfilled any obligations under the insurance contract because NDIC made an offer of judgment for the policy limit to Torres, which she rejected.

In regard to Torres’ promissory estoppel argument, the district court determined that letters sent from NDIC to Torres indicating that it was reviewing her medical records and it would review the demand and contact Torres’ counsel with an offer did not amount to a promise to pay any amount, and that none of the correspondence between NDIC and Torres precluded Torres from taking action. Torres appealed.

Torres argued that the district court erred when it failed to apply NRS 485.3091 to her action. Torres also argued that the district court erred when it considered the statutory offer of judgment made in the separate declaratory relief action and concluded it satisfied NDIC’s obligations under NRS 485.3091.

In Nevada, all motor vehicles must be insured for at least $15,000 bodily injury or death liability per incident, and $10,000 in property damage liability. NRS 485.3091 also contains an absolute-liability provision that states that every motor vehicle liability policy is subject to the following provisions which need not be contained therein:

(a) The liability of the insurance carrier with respect to the insurance required by this chapter becomes absolute whenever injury or damage covered by the policy occurs. The policy may not be cancelled or annulled as to such liability by any agreement between the insurance carrier and the insured after the occurrence of the injury or damage. No statement made by the insured or on behalf of the insured and no violation of the policy defeats or voids the policy.

Accordingly, Torres argued that NDIC was required to pay her at least $15,000, the statutory minimum, for required liability insurance.

Despite the absolute-liability provision, NDIC argued that its indemnity obligation was previously determined in a prior declaratory relief action to which Torres was a party. There, the district court found that Mollinedo-Cruz and Perez-Castellano did not comply with NDIC’s post-accident policy, and thus, NDIC did not have to defend or indemnify any and all claims arising out of the April 2, 2006, automobile accident involving Torres. In the instant case, the district court relied on this previous finding and determined that Torres was not a judgment creditor of NDIC based on this declaratory relief order.

However, the next paragraph of that declaratory relief order resolved this action in favor of Torres: “The Default Judgments taken against Defendants Mollinedo and Castellano do not apply to and are not binding upon Saundra Torres, who is still allowed to pursue any and all claims/defenses available to her under the terms and conditions of the subject insurance policy.” Thus, the Nevada Supreme Court found that the district court erred when it did not consider the entire declaratory judgment order.

More importantly, the Court held that no post-injury violation of a policy will release the insurer under the absolute-liability provision. The Court explained that this view is consistent with the many states that have adopted similar “frozen liability” statutes. At common law, the insurer was permitted to rescind an insurance policy for material misrepresentations made in acquisition of the policy or for breach of the insurance contract. Derogating from the common law, absolute-liability statutes are interpreted to require payment of the minimum statutorily required insurance benefits, if the law required the policy to be in place, even if the insured has breached the insurance contract or made misrepresentations in the insurance application.

The Court explained that Mollinedo-Cruz’s and Perez-Castellano’s noncompliance with the notice and cooperation clauses of the policy did not void NDIC’s indemnity obligations. Thus, NDIC cannot avoid NRS 485.3091’s absolute-liability requirements.

Accordingly, the Court concluded that the district court erred in denying Torres relief under NRS 485.3091.

Statutory offer of judgment

Torres also argued that the district court erred when it considered the statutory offer of judgment made in the declaratory relief action. The Court noted that NDIC essentially conceded the district court erred, but such error was harmless.

Pursuant to NRS 48.105(1), evidence regarding settlement offers is not admissible at trial to prove liability for or invalidity of the claim or its amount. The Court explained that one of NRS 48.105(1)’s undisputed purposes is to prevent evidence of settlement offers from haunting a future legal proceeding.

The Court further explained that the district court permitted the evidence to be admitted to show that an offer was made on the particular dates in question, and the amount of the offer, and for no other purpose. Thus, the Court determined by the district court’s reasoning alone, it should not have considered the offer for the purpose of satisfying NDIC’s obligations under NRS 485.3091.

Promissory estoppel

Torres next argued that the district court abused its discretion in not awarding her damages based upon a promissory estoppel theory, because she relied on NDIC’s representations that an offer would be forthcoming and the court did not address all of the doctrine’s elements. Torres further argued that the district court abused its discretion when it determined that Torres’s claims were too speculative.

In Pink v. Busch, 100 Nev. 684, 691 P.2d 456 (1984), the Nevada Supreme Court set out the elements of promissory estoppel:

To establish promissory estoppel four elements must exist: (1) the party to be estopped must be apprised of the true facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting estoppel has the right to believe it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of facts; (4) he must have relied to his detriment on the conduct of the party to be estopped.

In this case, the Court concluded that the two requirements upon which the district court based its determination—the existence of a promise or conduct the party to be estopped intended to be acted upon and detrimental reliance—evince substantial evidence to support the district court’s conclusion that there was no promissory estoppel.

First, the Court explained that the district court determined that NDIC’s conduct did not amount to a promise or conduct upon which it intended Torres to rely. Normally, a cause of action will not be supported by a mere promise of future conduct.

The Court pointed out that here, the district court determined that the communications between NDIC and Torres’ attorney at the time did not amount to a promise to pay any amount. The district court found that NDIC sent Torres three letters before Torres filed her personal injury lawsuit. In a letter dated September 28, 2006, NDIC stated that it would review the demand and contact Torres’ attorney’s office with an offer. Another letter dated October 30, 2006, informed Torres’ attorney that the medical bills had been sent for medical review, and that a copy of the Summary and Analysis report will be sent to his office soon. The district court also found that Torres’ attorney testified that he knew his demand letter had expired without NDIC making an offer.

The Court concluded that sufficient evidence supported the district court’s conclusion that the letters were insufficient to induce reliance or establish a promise. The Court explained that the letters here did not constitute a clear promise to pay, nor did they specify an amount to be paid. Moreover, Torres could not have reasonably relied on the September 28 letter because, even if an offer had been forthcoming, it may have been insignificant.

Second, the Court determined that Torres did not establish detrimental reliance on NDIC’s representations. A promisor will only be liable for conduct intended to induce reliance on a promise if the action induced amounts to a substantial change of position.

The district court concluded that the letters did not induce any measurable detrimental reliance and that Torres’ claims that she did not contact Mollinedo-Cruz and Perez-Castellano on her own because she relied on NDIC’s representations were too speculative. The Court determined that substantial evidence supported the district court’s conclusions. Torres’ lawyer testified at trial that he attempted to contact Mollinedo-Cruz and Perez-Castellano before filing Torres’ claim. Torres also eventually acquired a default judgment against Mollinedo-Cruz and Perez-Castellano for the accident. Thus, the Court found that Torres did not detrimentally rely on the letters because she did not refrain from trying to contact Mollinedo-Cruz and Perez-Castellano, nor did the letters prevent Torres from getting a judgment in her favor.

Breach of the implied covenant of good faith and fair dealing

Prior to trial, the district court dismissed Torres’s claim that NDIC breached the implied covenant of good faith and fair dealing. Torres argued that the district court erred in dismissing her claim and that the Nevada Supreme Court should extend claims for bad faith.

The implied covenant of good faith and fair dealing is a common law duty applicable in all contracts. A breach of this duty can only occur when there is a special relationship between the parties, such as that between an insurer and insured.

The Court explained that third-party claimants do not have a contractual relationship with insurers and thus have no standing to claim bad faith. Nothing in Nevada’s absolute-liability statute creates a contractual relationship between an insurer and a third party for bad faith.

The majority of jurisdictions also conclude that third-party claimants do not have a private right of action against an insurer. In the few jurisdictions that have allowed a bad faith claim against an insurer, the third-party claimants relied on express statutory language authorizing such direct actions.

The Court explained that NRS 485.3091 provides no express language that permits a third-party claimant to pursue an independent bad faith claim against an insurer. Absent such a provision, the Court declined to read language into a statute granting a private cause of action for an independent tort. Thus, the Court concluded that Torres did not have standing to pursue a bad faith claim.

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